Armada Hoffler Properties Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025

There are 8 speakers on the call.

Operator

This call is being recorded on Thursday, 05/08/2025. I would now like to turn the conference over to Chelsea Forrest.

Operator

Please go ahead.

Speaker 1

Good morning, and thank you for joining Armada Hoffler's First quarter twenty twenty five earnings conference call and webcast. On

Speaker 2

the

Speaker 1

call this morning, in addition to myself, is Sean Tibbett, CEO and President and Matthew Barnsmith, CFO. The press release announcing our first quarter earnings along with our supplement package were distributed yesterday afternoon. A replay of this call will be available shortly after the conclusion of the call through 06/07/2025. The numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, 05/08/2025, and will not be updated subsequent to the initial earnings call.

Speaker 1

During this call, we may make forward looking statements, including statements related to the future performance of our portfolio, our development pipeline, the impact of acquisitions and dispositions, our mezzanine program, our construction business, our liquidity position, our portfolio performance and financing activities, as well as comments on our outlook. Listeners are cautioned that any forward looking statements are based upon management's beliefs, assumptions and expectations, taking into account information that is currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known and many of which are hard to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the forward looking statement disclosure in our press release that we distributed yesterday and the risk factors disclosed in the documents we have filed with our furnished to the SEC. We will also discuss certain non GAAP financial measures including but not limited to FFO and normalized FFO.

Speaker 1

Definitions of these non GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the quarterly supplemental package, which is available on our website at armadahopper.com. I will now turn the call over to Sean.

Speaker 3

Good morning, and thank you for joining us as we review Armadahopper's first quarter results and provide some perspective on where we're headed for the remainder of the year and beyond. The first quarter was highly productive, reflecting our focus on operational excellence and the core goal of quality. As you can see from the release, all of our property types performed well and we delivered a strong result with normalized FFO of $0.25 per diluted share. With portfolio occupancy holding steady at a minimum of 95% over the past four quarters, we are reaffirming our full year guidance. Our office assets remain essentially fully occupied at 97.5%.

Speaker 3

The remaining 2.5% is well inside a market vacancy factor. It is an especially good time to be concentrated in highly amenitized mixed use environments where we benefit from a more affluent multifamily renter base and strong, stable office occupants, both of which are attracted to and support a curated mix of retail and entertainment offerings. These settings create natural synergies that align with our evolving tenant and consumer preferences, positioning us for sustained success. Additionally, both our shopping centers and apartment communities remain defensive by nature, supported by demand for everyday goods and services, particularly grocery and necessity based retail. When looking at the 25% of retail outside of our mixed use environment, 40% of this ABR comes from those with grocery anchors or shadow anchors.

Speaker 3

This strategic mix of asset classes and locations reinforces our ability to drive steady performance. We are pleased with the strong performance delivered across all segments of our portfolio, office, retail and multifamily. Our properties demonstrated solid fundamentals this quarter with both our office and retail assets achieving double digit GAAP renewal spreads and a blended 2.6% growth rate for new and renewed multifamily leases. The positive re leasing activity in our commercial portfolio demonstrates our ability to simultaneously grow rents and extend lease terms. While the construction activity met expectations in the first quarter, a few construction projects across the balance of the year have come out of our guidance.

Speaker 3

As we have previously communicated, our business strategy continues to shift away from reliance on fee income with an increased emphasis on driving higher quality property level earnings. We believe the increased property level performance, coupled with expense management, will help to offset the decreased construction income for the remainder of the year, thus our unchanged guidance. Before we move on, I'll make a few comments on the broader economic landscape. It's clear that external factors like tariffs and ongoing macroeconomic uncertainty are top of mind for all businesses right now, and we are no exception. We are fully focused on those things that we can control.

Speaker 3

For us, control in this context is a disciplined approach to managing costs, seeking operational efficiencies, and making strategic decisions that position us for long term success. We will continue refining our business model by reviewing all levels of expenses to ensure that we are most efficiently and properly stewarding our resources. An example of this is our 2025 gs and A reduction of 13% year over year, achieved with tighter cross controls and reduction in executive headcount. We are confident we can continue to deliver value through this challenging environment by remaining agile and always maintaining a proactive posture, looking for opportunities to unlock value, whether that means disposing of a fully stabilized asset with less growth at aggressive cap rates or unearthing value through redevelopment. Since the beginning of the year, we spent a significant amount of time on the road, meeting directly with our shareholders and investment partners.

Speaker 3

These conversations have been invaluable, providing opportunities to reinforce our conviction in the company's long term quality focused strategy, which is to reduce the complexity of the business model while improving the balance sheet. As part of the improvement of the balance sheet, in mid March, we reset our quarterly dividend to $0.14 per share. This was a difficult but necessary decision that we made with long term value creation in mind. The new dividend level is now fully supported by operating property cash flow. This change reinforces our broader goal of delivering sustained, durable and predictable returns while also increasing fiscal flexibility for the company.

Speaker 3

We are in a solid financial position and feel very comfortable that we can sustain this more appropriate level of dividend into the future. In the first quarter, we experienced continued momentum across the portfolio with above 95% occupancy across all three segments. Commercial leasing was robust with 320,000 square feet transacted during the quarter. Additionally, our office has no material lease expirations through 2027. Multifamily remains strong at 95% occupancy, and we are seeing signs of supply absorption in key Sunbelt markets like Atlanta and Charlotte.

Speaker 3

Retail remains solid with demand for well located space, driving continued leasing activity and positive spreads. Our retail portfolio remains resilient amid broader retail headwinds, including closures by tenants such as Party City, Ponds and Joann Fabrics, representing roughly 115,000 square feet of space in our portfolio. However, I'm pleased to share that as of today, there is tenant interest on all of this space with over 85% already under lease or LOI to higher credit quality tenants at 25% higher rents. These leasing successes reflect the strength of our locations as well as our proactive approach to tenant rollover and repositioning opportunities. The Interlock, our mixed use asset in West Midtown Atlanta, in partnership with Georgia Tech, has made tremendous progress over the last several quarters, reaching materially full occupancy as we committed.

Speaker 3

The retail component is currently 98% leased, underscoring the strong demand for space in this vibrant, walkable neighborhood. During the quarter, we announced a marquee new lease with Up One Arcade, the world's first Formula One themed hospitality and entertainment brand backed by Liberty Media, the owner of Formula One, which will occupy over 15,000 square feet of first generation space at the Interlock. This dynamic concept will further elevate the experience driven energy of the project. On the office side, we are currently 94% leased with only 11,000 square feet available for lease with current interest and no rollover this year or next. We executed three new office leases totaling approximately 23,000 square feet, reinforcing our belief that well located, high quality office space in mixed use environments remains highly desirable for a wide range of tenants.

Speaker 3

At Harbor Point, we are thrilled to welcome Rowe Price to their new global headquarters as of the March. Having T. Rowe officially on-site in our Harbor Point ecosystem is a major milestone for the community and a testament to the long term vision we've executed on at Harbor Point. We announced Monday that we entered into a binding term sheet with our partner to acquire our partner's full interest in Allied Apartments, where leasing is actively progressing with 39% currently leased. We have received positive feedback from residents that have moved in over the past few months.

Speaker 3

We're also preparing to welcome an exciting roster of new retailers all opening this summer that will complement the existing merchandising mix and further enhance the vibrancy and amenity base of the neighborhood. I'm pleased to report that Chandler Residences, located within the mixed use community of Southern Post, has successfully achieved stabilization with 95% leased. Southern Post combines residential living with thoughtfully curated retail, dining and office components, creating a vibrant, walkable community. On the commercial side, Southern Post is currently 72% leased or LOI. This includes all retail space, reflecting strong tenant demand and the project's growing momentum.

Speaker 3

Two new restaurants are scheduled to open their doors in the coming weeks, further activating the street level experience and enhancing foot traffic through the site. Multifamily fundamentals remain solid. We reported a healthy combined trade out of 2.6% for the first quarter, supported by strong retention and disciplined rent growth strategies. April has meaningfully improved as a result of some short term leases with renewal spreads holding strong at 5.1% and new lease spreads rebounding to 4.1%. We look forward to continued demand in our markets and capturing rent growth while maintaining high occupancy and resident satisfaction.

Speaker 3

Our momentum further validates our strategic positioning heading into the prime leasing season. Our 2018 vintage community, GreenSide in Charlotte, has experienced leaks that impacted the exterior of several units, And we are using this as an opportunity to complete a thoughtful improvement throughout the building, enhancing their overall appeal and value. As a result, some of the units are offline as we complete work in phases over the next ten to twelve months. Given the property's prime location in Midtown, less than a mile from the new Pearl Innovation Medical District, we are confident that we will realize the return on these capital investments once completed. The impact of this has been contemplated in our earnings guidance for this year.

Speaker 3

As part of our long term strategy, we are closely evaluating redevelopment opportunities within our existing portfolio, allowing us to unlock incremental value and drive future growth. We have added a section to the supplemental to detail these opportunities on Page 25. These efforts are focused on enhancing high performing assets and capitalizing on underutilized real estate that can be repositioned to meet evolving market demand. A great example is our ongoing work at Columbus Village adjacent to Town Center, Virginia Beach, where we are redeveloping the former Bed Bath and Beyond store. As we mentioned on the last call, this project will bring in a highly sought after national grocer and Golf Galaxy, complementing Town Center's current offerings and increasing traffic to the center while representing a 51 rent premium.

Speaker 3

We view this as a replicable model using our holistic approach and mix of asset classes to strategically allocate capital and resources in proven locations. Another example is our plan to monetize an undeveloped outparcel at Southgate Square for a new drive thru coffee location, which will activate excess land, drive additional traffic to the center, and enhance the property's overall income stream. We are also in the process of moving our Liberty Apartments leasing office from its current footprint to a more efficient nearby retail space. This move will allow us to repurpose the former leasing area into additional apartments, capitalizing on the strong demand for this community. Redevelopment is a key lever we will use to create value and enhance the quality of our income stream while maintaining a disciplined approach to capital deployment.

Speaker 3

Before we wrap up, I would like to take a moment to recognize the recent addition of Jennifer Boykin to our board of directors. Jennifer brings tremendous leadership experience and a strong operational background, most recently serving as EVP of Huntington Ingalls Industries and president of Newport News Shipbuilding. Her insights and perspective will be incredibly valuable, and we're excited to welcome her to the team. We remain focused on value creation through disciplined execution, thoughtful reinvestment and managing risk. As the year progresses, we are positioned to benefit from our upcoming multifamily deliveries as well as the continued maturation and ultimate stabilization of our development pipeline.

Speaker 3

We are acting with intentionality, building a stronger, simplified and more consistent Armada Hoffler, one that is more efficient, more balanced and creating more reliable earnings growth over time ultimately, one that is more aligned with creating long term shareholder value. I'm proud of the progress we've made so far, and I'm excited about the future. And I'm confident in the execution of our strategy. I'll now turn the call over to Matt.

Speaker 2

Good morning, and thank you, Sean. Amala Hoffler delivered a strong start to the 2025 fiscal year, demonstrating the resilience of our diversified portfolio and disciplined operating model. For the first quarter, normalized FFO attributable to common shareholders was 25,600,000.0 or $0.25 per diluted share, slightly above our expectations for the period. Net operating income for q one was 42,200,000.0, representing a 2% increase year over year and $600,000 better than budgeted. FFO attributable to common shareholders was 17,200,000.0 or 17¢ per diluted share.

Speaker 2

AFFO totaled 20,400,000.0 or 20¢ per diluted share. Once we subtract the noncash interest income, this results in zero one six dollars per diluted share, which is above our cash dividend as detailed on Page 19 of the supplemental. Our mixed use portfolio continues to perform exceptionally well, especially in the office segment. Same store office NOI increased by 9.2% on a GAAP basis and 6.3 on a cash basis. Office occupancy remained high at 97.5%, and office releasing spreads rose by 23.3% on a GAAP basis and 3.7% on a cash basis.

Speaker 2

Multifamily leasing performed well in Q1 with new lease growth and renewal growth both contributing meaningfully, reporting a blended rate for the quarter of 2.6%. Multifamily releasing spreads were 5.4% with new leases reporting negative 1%. These spreads continue to perform well in April, increasing to five point one percent and four point one percent respectively. Rent collections remain strong and tenant demand across our residential portfolio remains healthy. In our retail segment, performance remains steady.

Speaker 2

Leasing activity remained robust at our grocery anchored centers and our mixed use retail assets consistently achieved high occupancy levels, maintaining above 95% as the complementary blend of residential, retail and office components creates a self reinforcing ecosystem of demand driving stability across economic cycles. Our balance sheet remains a key focus of the management team. For the quarter, net debt to total adjusted EBITDA stood at 7.1 times at quarter end with our stabilized leverage at 5.4 times. Relative to our historic performance, we maintain strong liquidity of over $211,000,000 We also completed our hedging transaction during the quarter for $150,000,000 notional amount with a swap fixed rate of 2.5%, mitigating exposure to further interest rate volatility. We continue to operate with the expectation that interest rates may remain elevated longer than previously anticipated.

Speaker 2

Our balance sheet strategy emphasizes flexibility, allowing this management team to navigate through this environment whilst providing us options to fund growth when needed. We also recognize that debt capital markets remain selective. Our proactive approach to liquidity and disciplined deployment ensures that we can fund our current development commitments and, when appropriate, invest without undue balance sheet pressure. Prudent cash management is foundational to our approach, particularly in today's uncertain economic environment. In March, the board of directors made the strategic decision to right size our dividend to better align with projected property cash levels, ensuring a sustainable payout that supports both shareholder returns and long term balance sheet strength.

Speaker 2

As Sean mentioned, maintaining sufficient liquidity to fund operations, service debt, and supporting our dividend from the cash flows generated by owned properties is paramount to the company's success. We have proactively stress test our cash flow model under a range of downside scenarios, including a potential recessionary environment, high for longer interest rates, and moderate leasing activity. Following our recent dividend rightsizing, our adjusted funds from operation for the quarter and on a projected run rate basis is well positioned to fully cover our dividend obligations even under stress scenarios. This updated approach by management ensures that we're able to preserve balance sheet flexibility, protect our core distribution to shareholders, and retain capital for strategic investment opportunities that may emerge over the course of the cycle. Finally, I would like to highlight a very important point on expenses.

Speaker 2

General and administrative expenses are projected to decrease by 13% year over year, reflecting our conscious and ongoing efforts to manage cost prudently. Given the year over year reduction in earnings, we are taking deliberate steps to align G and A with the scale of our current operations while still supporting our strategic priorities. Fiscal responsibility remains a cornerstone of our operating philosophy as demonstrated by our better than expected performance in the first quarter, and we'll maintain a tight focus on expense control throughout the remainder of the year. For the remainder of the year, we'll continue to focus on strengthening the stability of our cash flows supporting both future growth and a consistent sustainable dividend, driving operating efficiencies through strategic investments in technology and process improvements, which continue to enhance margins over time. We remain disciplined in our execution, selectively advancing projects that offer attractive risk adjusted returns.

Speaker 2

We are fully aware that transaction volumes across the real estate market have slowed. Our midterm growth will primarily driven by the stabilization of the development pipeline and continued leasing activity, which positions us well in the current environment. Fortunately, with our strong internal pipeline this year, our model does not include external acquisitions to drive growth other than bringing online the allure multifamily assets from our real estate financing portfolio. Given our first quarter performance and our current line of sight for the remainder of the year, we are reaffirming our full year 2025 normalized FFO guidance of $1 to $1.1 per diluted share. Even with the headwinds that Sean mentioned in our construction entity, we are confident that our strategy combined with our new leadership and diversified portfolio, positions Amarla Hoffler to deliver for the shareholders.

Speaker 2

Thank you for your time and support. With that, I will now turn over to Sean for his closing remarks.

Speaker 3

Thanks, Matt. I want to thank everyone for joining us today and for your continued interest in Armada Hoffler. We remain focused on executing our short term strategy, delivering strong operational results and creating long term value for our shareholders. As always, I want to thank our dedicated team for their hard work and commitment. We look forward to updating you on our progress in the quarters ahead.

Speaker 3

Thank you for joining us. Operator?

Operator

You. And your first question comes from Andrew Berger with Bank of America. Please go ahead.

Speaker 4

Great. Good morning. Thank you for all the color and the opening remarks. Maybe just sticking with kind of high level, Sean, you touched on the macro a bit and appreciate the color on the cost savings. And it does sound like obviously it slowed the construction pipeline a little bit.

Speaker 4

But just curious, the macro uncertainty, the tariff conversations, has that translated to any changes in your office or retail leasing conversations? Have tenants brought this up as a concern or maybe caused any delays? Or has it really kind of been more limited to on that construction side?

Speaker 3

Andrew, thank you for the question and good morning. I, I think the latter is what we're seeing. As you can see, we've been very busy executing new and renewal leases. So I think the activity on the on the portfolio side has not seen that to date. And frankly we're seeing strength in that space.

Speaker 3

So I think that's good. Again, we can't control the macro environment to your point, but new starts are probably going to be softer and that's what we're seeing in the construction side. So thankfully for us the value of the portfolio continues to shine as we're able to maintain the guidance here, even given some softness in the construction space.

Speaker 4

Great. Thank you. And, I think you touched on this a couple of times in the opening remarks, Matt. I know you mentioned it at the end, but you said you want to maintain some optionality to invest strategically over the course of the cycle as opportunities arise. And can we just get your latest thoughts?

Speaker 4

Obviously, I appreciate there might not be anything immediate term, but as we get a couple years out, do you want to see more of these mixed use communities? How open are you to office, maybe versus the other asset classes? Just your latest thoughts on the, portfolio composition and whatnot.

Speaker 3

Sure. I think in the short run, both, disposition and acquisition are probably challenging given the lack of recent trades and the uncertainty in the market. Right? So I'm not sure we would feel comfortable going to market to either acquire or dispose, you know, in the short run. In the longer term, as you know, we are very, equipped to operate and develop, if necessary, mixed use communities.

Speaker 3

And we believe these ecosystems continue to drive frankly, value in markets such as this. And so, if we see an opportunity, we'll prepare to strike, but I don't see that happening, this year, if you will. But we'll continue to keep our eyes peeled. We don't want to rule anything out. But I think, you know, to answer your question, we are always looking for an opportunity to use our competency, and I would characterize one of our main competencies as operating and executing on these mixed use ecosystems.

Speaker 3

In terms of office, I think the jury, you know, from a market perspective is still out. I will, you know, quick commercial here, say our office is 97.5% occupied, frankly, and, and we're happy with that. I hope the market continues to become happier about our office product, and we'll continue to advertise that. But, I don't think you're gonna see us rush out to do an office. That being said, we are comfortable with the office that we do have, and it's primarily, as you know, located in the mixed use community.

Speaker 3

So back to the mixed use story and kind of our core competency.

Speaker 4

Great. Thank you. And if I could just, squeeze in one more kind of on that point with with office. The leasing spreads have been pretty strong over the last couple of quarters. I think they've averaged over 20% the past four quarters.

Speaker 4

So I'm just curious kind of a two part question. One, what type of annual escalators are you baking into those leases? And obviously not much rolling over the next year or two. I know you said you've addressed most of the major expirations and obviously not much space to lease over 97% occupied. But how sustainable would you say those spreads are looking out over the next couple of years just kind of based you know, in place rents, escalators, and today's market rents assuming no major changes?

Speaker 3

Yeah. I think, you know, to your point, we're pretty well set. I mean, knock on wood. Right? Like but in terms of the office leases that we have, we we let me let me say it this way.

Speaker 3

We we typically see two to 3%, escalators every year, but we're getting term on these leases, ten year term. And so I think that's what is providing the spread for you, but also this kind of comfort level of this long term arrangement with credit tenants. So the demand plus the the demand here allows us to, not just here in Town Center, but in our office product, allows us to achieve the two to 3%, annual escalators, but also that longer term, which is creating that spread. So we feel good about that. We're happy with that.

Speaker 3

And, again, we've we've primarily, focused on taking the risk off the table in the office space. And I think, you know, I think it's hard to argue with the with the occupancy and the the lack of rollover, if you will, in the short run or the midterm for that matter.

Speaker 4

Great. Thank you very much.

Operator

Thank you. Your next question comes from Victor Fetiv with Scotiabank. Please go ahead.

Speaker 5

Hello. Good morning, everyone, and thank you for taking my question. I have a question on kind of retailers tenant watch list. I know you mentioned a couple of tenants that went bankrupt already, and you have already, if I'm mistaken, 85% of LOIs or interest for these spaces. But just trying to understand what are the next potential problem tenants and what is your exposure to those ones.

Speaker 3

Sure. I think, thank you for the question, Victor. I think I from from my perspective, and and Matt may have some more color on this he'd like to add, but there there are three names top of mind, and they are Joann's, Party City, and Conn's. And as I said in the prepared remarks, yeah, 85% of that is currently we're at the table either lease or under LOI, at lease or under LOI with those at, with 20 to 25% higher rents. And I think, you know, in my mind, that's a proxy for that type of space.

Speaker 3

There are people, I think lining up may be strong, but there are people knocking on our door wanting to talk to us about that space. And, frankly, I feel very good about the fact that 85% of it our team has paper on. So that that's exciting for us. You know, I are there, you know, small mom and pop shops out there, a 2,000, three thousand feet? Sure.

Speaker 3

But, I think, you know, back to my comment previously to Andrew, I think we're we're in the process, if not already, of taking the the major risk off the table. I mean, the renewal, for instance, in Nordstrom Rack, you know, 32,000 feet, that was a big one for us. Right? We kicked that out five years, and that's that's the type of thing we wanna do. I mean, are there, like I said, are there smaller pieces out there?

Speaker 3

Yes. We're working on those. But I think I think we've, mitigated by and large the big pieces of the portfolio that would be concerning on a short to midterm basis.

Speaker 5

Got it. Thank you. And then sticking with risks, but probably switching to multifamily segment, in particular, Baltimore submarket, do you see any impact from Ratham and John Hopkins cut in financing? And in particular, because you have new asset coming online there, is there any cannibalization in occupancy as well? So, like, just trying to understand some color for that submarket and multifamily component.

Speaker 3

Sure. I, to date, we haven't seen or at least we we can't tell if there's an impact from the Johns Hopkins, you know, kind of funding situation. I, I would say we have seen our some of our residents interested in assigning leases next door at, Allied, which we think is a good thing. Occupancy seems seems to be holding, and the rate seems to be holding. And as we said to the market, we wanna be very careful here that we don't cannibalize ourselves.

Speaker 3

But certainly, it's a I think it's a testament to the quality of the product that's that's being offered up there that our our tenants are essentially our residents are essentially moving from one high quality asset, trophy asset to a newer trophy quality asset. And, look, we've we've done a lot of calculus on this, and that's, you know, as far back as two years ago, I've been, conveying to the market that we wanna be very careful about the lease up. We do get questions about stabilization, and we've said, hey. Look. This needs to be an you know, be thinking eighteen to twenty four months such that we can maintain the market rents that we wanna maintain to keep a healthy ecosystem there.

Speaker 3

So, you know, I think there's also the added benefit of of TRO employees, right, and the added, kind of traffic in that area. There are thousand couple thousand more employees there, right, and people are coming back to the office more than they were two years ago. So I think these are all, in my mind, drivers of kind of increased demand over time relative to where we may have been twelve to twenty four months ago.

Speaker 5

Got it. Makes sense. Thank you.

Speaker 3

Yes, sir.

Operator

Your next question comes from Rob Stevenson with Janney. Please go ahead.

Speaker 6

Good morning, guys. Sean, to ask the tenant question a little bit differently. You have leases on, I guess, a little over 6% of the entire portfolio rolling over the remainder of 2025 and about 12% of the retail portfolio in 2026. Any tenants of impact that have either told you that they are renewing or look like that they may be iffy to renew, maybe not on a tenant watch list, but just because of whatever their changing needs are space wise or location wise that might not renew that might impact you guys looking forward?

Speaker 3

Yeah. I think let's start with thanks, Rob, for the question, and good morning. Let's start with I what I would say is the biggest rollover upcoming. It's in the retail space. It's an Office Depot in Durham, Twenty Eight Thousand square feet.

Speaker 3

We have, we think they may not renew, and frankly, we have the backfill identified, and we're working on that as we speak. There's a Staples, that we're in discussion with. We we think they are going by the way, that's 19,000 feet that, all indications are they're going to renew. The other renewal in '25 is a Ruth's Chris store here in Virginia Beach. We've renewed that post first quarter for ten years.

Speaker 3

So, that that's quarter two. You'll see that in the stats in quarter two. '26, there's a Safeway for 55,000 feet. We renewed for five years. There's a Harris Teeter for 52,000 feet, the best performer in the market.

Speaker 3

So we there's a high indication that they're gonna renew. If not, I'm sure somebody will wanna step into that, another high end grocer step into that space. But, yeah, I think, we'll see renewals. And I think so the most work, I think, what I'm saying to you, Rob, needs to be done on that Office Depot and locking up that 28,000 feet with the backfill that we're we're talking to.

Speaker 6

And is that likely if it winds up coming back to you, is that likely to be a multi tenant space? Or at 28,000 square feet, are there is that tenant pool, you know, deep enough to release that at this point?

Speaker 3

I we've got we've got options that could do both. I think, you know, from my perspective, if we can fill it with a high quality tenant that's able to absorb that space, so be it. If not, we can we can, arrange a situation like we've done at Bed Bath here in Virginia Beach, right, and have a two or three tenant. But we're we're comfortable that, there's not a lot of drag there. That deal expires on the thirty first of this year.

Speaker 3

So, expect to have us having some more, kind of tangible conversation with you in the quarters to come.

Speaker 6

Okay. And then back to your earlier comments about the disposition market being sort of I guess a bit frozen to paraphrase you. If one of the options comes up to purchase one of the apartments out of the mezz portfolio, If the disposition market doesn't allow you, I assume that given the cost of common, you probably wouldn't issue equity here. Are you guys comfortable with temporary leveraging up using a line of credit to close a deal to get a high quality apartment property in the mix? Do you push that out if that's the option?

Speaker 6

How are you guys thinking about that at this point in time?

Speaker 3

Yeah. I think to your point, we don't wanna take anything off the table, Rob. Right? Like but, I think if if there were something attractive enough for us to look at, we would want to, to your point, kick the can on it and see if we can't keep a line of sight on it for long enough to get maybe some better capital, availability or arrangement in place. You know, my comment about disposition please don't make a mistake.

Speaker 3

I I have people calling all the time about wanting to buy assets. My view on this is let's let's let the market settle down a little bit so that we can really understand, you know, what comps are. I'm not sure there are great comps out there right now. Back to the acquisition side, I mean, that that's certainly a source of capital. If we saw something we wanted, we can trade quickly and and purchase it.

Speaker 3

So, you know, assuming that it's fitting within our core strategy and that the the sponsor developer is willing to sell it to us at a price that works. Right? Like so I think yeah. A lot a lot of algebra there. But to answer your question, we're not wild about, obviously, selling common at the prices we set today.

Speaker 3

And, obviously, we're sensitive to leverage. So I think there's a little bit of a a little bit of a dance there. Matt, you wanna add anything to that from the balance sheet standpoint?

Speaker 7

Just to just that's a great question, Rob. Just to say that that, you know, we have spent a lot of time over the last year or so trying to be very disciplined, and we're working very hard to get the leverage, you know, in a range that the the investors, the shareholders are more more comfortable with. So as Sean said, there'd be there'd be some, you know, puts and takes on the algebra there and the calculation, but, you know, we have committed to the market that we're gonna be disciplined capital allocators, and we would have to look at that holistically, you know, with respect to where our cost of capital and where the cost of debt is today.

Speaker 6

Okay. And is TRO now paying full rent or is there still ramp up left in that lease to get to full rent for them?

Speaker 7

Yes. So TRO started paying rent, or they have been paying rent back since since August. The rent commencement date, and the move in was March 7. Obviously, as the project closes out, there will be a true up here, you know, in the last last little bits of the as the contractor finishes and and finalizes that.

Speaker 3

But you're recognizing rent as of March?

Speaker 7

Yeah. We're recognizing rent, not prepaid, recognizing true rent as of March 7.

Speaker 6

Okay. So the second quarter should be a full represent a full quarter of GAAP rent for TRO?

Speaker 7

Yes. And Rob, you will see that for us come in as a FFO contribution. It's an off balance sheet JV, so our 50% comes back as an FFO contribution after debt service has been taken at the property level.

Speaker 6

Okay. And then last one for me. There's five redevelopment projects listed in the supplemental tolling a little over $19,000,000 Have all of those projects started? And are they already sort of either in the $80,000,000 construction backlog or flowed through previous numbers? Just trying to get a feel for whether or not some of those haven't started and will hit the backlog at some point or whether or not that's basically already accounted for in the backlog either past or present.

Speaker 3

Got it. Thank you. Yeah. I think probably the best way to run through this, these five, they're relatively small, Rob, to your point. So it's not going be a tremendous kind of bubble in backlog.

Speaker 3

Liberty Apartments is nearly complete. You're probably, looking at a q three, kinda lease up. I think, actually, we've already signed paper for residents on those two on those apartments. So that's a that's awesome kind of small, but awesome, uplift story there. Columbus Village should be in the numbers.

Speaker 3

It's in progress, as you know. We're looking at, q four, for the retailers. Potentially, the grocery will slide into q one of next year. Let's see. Southgate Square still working on that deal, so that's that's not in a number yet.

Speaker 3

Consolidation of company operations, that's that's that's kind of an internal move here. You haven't seen that yet. Pembroke Square, still talking, to the kind of site, work early planning folks on that one. But to be clear, these would not be in backlog because they're internal development projects. Right?

Speaker 3

You're not gonna see that in the in the third party backlog. Some of that may show up in our kind of, you know, broader backlog or broader work work scope, but they won't be in the third party backlog. As you know, we won't be able to recognize fee on this. Okay. Thanks, guys.

Speaker 3

Appreciate the time.

Speaker 2

Yes. Thank you, Rob.

Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to Sean Tibbets for closing remarks.

Speaker 3

Thank you all for joining this morning. We appreciate your attention. Appreciate all the questions. Just to our team who's listening out there, our partners, our investors, we appreciate your confidence in us. We look forward to continuing to improve the quality of this of the story in this great company, and, look forward to talking to you on the road and next quarter.

Speaker 3

And, again, appreciate your support. Hope you have a nice weekend. Take care.

Operator

Ladies and gentlemen, this concludes today's conference call and webcast. Thank you so much for your participation. You may now disconnect.

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Key Takeaways

  • Armada Hoffler delivered a strong first quarter with normalized FFO of $0.25 per diluted share and reaffirmed its full-year guidance of $1.00–$1.10 per share.
  • Portfolio occupancy remained exceptionally high at a minimum of 95% across all segments, including 97.5% office occupancy, while office and retail assets achieved double-digit GAAP renewal spreads and multifamily leases grew by 2.6%.
  • The company is shifting away from construction fee income toward higher-quality property-level earnings, underpinned by disciplined cost management that drove a 13% year-over-year reduction in G&A expenses.
  • In March, Armada Hoffler reset its quarterly dividend to $0.14 per share, fully supported by operating property cash flows to enhance fiscal flexibility and sustainability.
  • High-performing mixed use assets and targeted redevelopments continue to unlock value, highlighted by 98% retail leasing at The Interlock (including a new Up One Arcade lease) and Harbor Point’s new Rowe Price global headquarters.
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Earnings Conference Call
Armada Hoffler Properties Q1 2025
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